Who owns your mortgage? And Why does a Short Sale Take So Long?

Many homeowners I speak with do not understand how the mortgage industry works and the players involved. So let's talk about it.

Let's start with a typical mortgage origination scenario.

1. A Home-buyer goes to ABC Bank and applies for a mortgage. For this example, let's say it is a conventional mortgage.

2. ABC bank is a large, regional or national bank. They underwrite that loan so that it meets Fannie Mae or Freddie Mac standards. This makes it possible for them to sell the loan to Fannie Mae, Freddie Mac or some other Secondary Market Investor, after the loan is originated.

3. The loan is approved and closes. ABC Bank takes their own money, or money they have borrowed, and lends it to the Home-buyer. They charge him an Origination fee for creating the mortgage.

4. ABC Bank then turns around and sells that loan to a Secondary Market Investor, and hopes to keep the Servicing Rights. That means, they still send the new Borrower their monthly bill and collect the payments, etc. For this, they get paid a monthly servicing fee.

But now ABC Bank has that money back that they loaned out. So they are able to do this same activity over and over and over collecting more and more Origination Fees and Servicing Fees. This is how most Mortgage Companies make money on mortgages.

So now the loan is seriviced by ABC Bank, but even though they originated it, they no longer own it. The new owner of that loan is called The Investor. If that loan needed mortgage insurance, there is also a Mortgage Insurer involved with that mortgage.

So this leads me to the following question that I get all the time... "Why do the banks take so long to review a short sale and make a decision? Don't they want to get this resolved asap?" The answer is that they don't necessarily want it to be resolved asap. That is because there is a conflict of interests between the Servicer and the Investor. The Investor is the one losing the money, and possibly the Mortgage Insurer. So they have an interest in potentially resolving a delinquent loan sooner rather than later. But the Mortgage Servicer is being PAID every month to service that loan. Once that loan is closed out, that income will stop. So the Servicer does not have an incentive to make the process fast and efficient. So long as the Investor on the loan is not unhappy with their current timelines and servicing of the loan, then the bank has no incentive to spend money to better train their staff, streamline the process, or hire more staff to handle to volume of files they have to review. So nothing changes for the better, even so many years after the initial downturn that caused the real estate crisis to start.

What to look out for with a vacant short sale.

There are things to look out for when your short sale is a vacant house. There are processes the lender will take that the seller and agent should be aware of.

The vast majority of the short sales we negotiate are on mortgages that are no longer current on payments. Once the loan is delinquent the mortgage servicer is going to start certain processes that they are required to do. Collection calls and letters are obvious actions they will be taking. Eventually they will also start "soliciting" the borrower to apply for assistance. This means sending them an application package and encouraging them to complete it and send it back to be reviewed for a loan mod and other options.

Vacant Properties have their own concerns.

Another process the servicer is going to do is to start checking on the property. Somewhere within the first 90 days the bank is going to send a property preservation contractor to the property to see if it looks like it is occupied, being maintained, or vacant. If the property is occupied, you may hear from the homeowner that they saw someone walking on the property or taking photos. They may even peek in the windows. This contractor is looking to see if the property is abandoned and they are taking photos for the report that they have to submit.

If the property looks vacant, the contractor will usually leave a door hanger or put a stick on the door that says something like "This property is believe to be abandoned. If this is not the case, call you lender immediately at 555-555-5555". If the property is not vacant, the homeowner will want to call and let the bank know that is not. If the property is vacant and the homeowner is maintaining it and checking on it, they would want to let the bank know that also.

If it is Vacant, expect it to be Secured.

If the property is vacant, even if the homeowner is maintaining it, expect that the bank will "Secure" it. Secure it means breaking in, changing the locks on at least one door, and usually winterizing it. Even in warm weather months, it is not uncommon for them to still winterize it. The lender has the right to secure the asset that is collateral on the loan against damage or loss of value. So they will do that. Their concerns are things like burst pipes and water damage in the cold months. But even in the warm months, vandalism and damage due to stolen copper pipes are concerns.

So do not be surprised to show up at the property to find the locks changed and either no lock box or a different lock box than the one the agent left at the property. Typically the agent's lock box will be found inside on the floor, still attached the the door handle that was removed and replaced. Even if there is a real estate sign in the yard, it is not common for the preservation company to call the agent to ask about the occupancy or let them know they will be securing it, though it does happen sometimes.

The bank cannot lock out the homeowner. So we or the homeowner are able to get the new lock box code or a copy of the keys. The main reason they changed the locks was so that the preservation contractor has access to the property for routine checkups on the property in the future, without having to break in again.

Beware the Preservation Contractor!

The companies that are hired for the property preservation work are not licensed, or regulated in CT and many other states. Many of these companies subcontract out the inspections and actual securing of the property. There is little to no oversight or accountability. Due to these facts, some of the shadiest people you will meet are involved here. I have seen many instances of theft, vandalism, and shady actions by these companies. I have seen properties secured that were obviously occupied. Only for the occupant to come home and not be able to get in. I have seen MANY things stolen. I have seen utilities turned off in the middle of winter, but no water drained from the pipes. I have seen doors and windows left wide open, presumably for someone else to come back after dark to steal from the house.

So what to do?

For the homeowner: If the property is vacated by the homeowner and the payments are not being made, they should move out all of their belongings. Do not consider the property to be a good place to store belongings until closing. Things will disappear once the property is secured and if they call the Police they will be told this is a civil matter, not criminal. The bank has no accountability or oversight over these companies and does not care about any of this.

If you see that the property has been secured, check it out. Did they turn everything off? Did they drain the water? Their incompetence may have put the property at further risk of damage, rather than reduced the chances as the banks intend.

For the agent: If the agent sees a sticker on the property or gets a call from a company that says they are going to secure the property, I would either remove the lock box or try to put it somewhere other than the door handle that would be changed if they changed the locks. No one likes losing a lock box, especially the electronic ones.

This is all something to be aware of and keep in mind when dealing with vacant properties and delinquent mortgages.

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Bio

Sean Wilder started in the pre-foreclosure business in 2007. Previously he enjoyed successbusiness in the transportation industry, real estate investing and as a licensed Realtor. Sean brought the same determination and work ethic that lead to great success in his previous businesses to Loss Mit Services based in Enfield, CT. His focus, combined with his drive to succeed, have been essential to his success as one of the area's top short sale negotiators.

Known for finding creative ways to overcome hurdles and never ending persistence; Sean, believes in the power of team. Sean and his team are in the trenches everyday, plowing through challenges and objections while negotiating with various lenders, and finding solutions to difficult problems. It is this daily experience that brings Loss Mit Services consistent success and provides them the knowledge to share.

Sean belongs to a number of industry groups and associations that allow him to collaborate, share, learn, teach and stay updated on the latest changes in the pre-foreclosure industry at the federal, state, local and lender specific levels.

Effective Oct 1, 2009 all debt negotiation companies that offer loan modification, short sale, or foreclosure rescue services needed to be licensed by the CT Dept of Banking. Sean and his company Loss Mit Services were the 1st to be awarded the Debt Negotiation License # 27332 which can be verified at the CT Dept of Banking Website by Clicking Here. In addition, effective Oct 1, 2011 Debt Negotiators were required to also be licensed Mortgage Loan originators and Sean also has received this license, NMLS# LO-831853.